Economy Archives - Page 108 of 138 - the patient investor

October 30, 2012

Unsaving the U.S. economy | MacroScope

Gabriel Burin writes that the U.S. savings rate sank last month to its lowest since November.

“Households were only able to boost consumption in the third quarter by dipping into their savings,” said Paul Dales, senior U.S. economist at Capital Economics, after the Commerce Department release. “Faced with the prospect of major tax hikes in the New Year, however, they will soon become more cautious”……..

via Unsaving the U.S. economy | MacroScope.

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

October 30, 2012

Chinese TV Host Says Regime Nearly Bankrupt | Epoch Times

A sobering assessment of China’s economy reported by Matthew Robertson:

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis — on the brink of bankruptcy.

The youtube audio requires translation:

Robertson summarizes Lang’s assessment into five key points:

The regime’s debt sits at about 36 trillion yuan (US$5.68 trillion).
The real inflation rate is 16 percent, not 6.2 percent as claimed.
There is serious excess capacity in the economy, and private consumption is only 30 percent of economic activity.
Published GDP of 9 percent is also fabricated. According to Lang, GDP has contracted 10 percent.
Taxes are too high. Last year, direct and indirect taxes on businesses amounted to 70 percent of earnings…..

via Chinese TV Host Says Regime Nearly Bankrupt | Business & Economy | China | Epoch Times.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 30, 2012

What’s the use of economics? | Alan Kirman | vox

This column by Alan Kirman highlights the problem with macroeconomics today:

The simple question that was raised during a recent conference organised by Diane Coyle at the Bank of England was to what extent has – or should – the teaching of economics be modified in the light of the current economic crisis? The simple answer is that the economics profession is unlikely to change. Why would economists be willing to give up much of their human capital, painstakingly nurtured for over two centuries?

…….rather than making steady progress towards explaining economic phenomena professional economists have been locked into a narrow vision of the economy. We constantly make more and more sophisticated models within that vision until, as Bob Solow put it, “the uninitiated peasant is left wondering what planet he or she is on” (Solow 2006).

via What’s the use of economics? | vox.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 29, 2012

Five steps to fix Wall Street

Some more thoughts on the five steps former FDIC chair Sheila Bair suggested to reform the financial system.

Break up the “too big to fail” banks
My take is that breaking up may be difficult to achieve politically, but raising capital ratios for banks above a certain threshold would discourage further growth and encourage splintering over time.
Publicly commit to end bailouts
Just because the bailouts were profitable isn’t a good reason to give Wall Street an indefinite option to “put” its losses to the Treasury and to taxpayers.

As Joseph Stiglitz points out: the UK did a far better job of making shareholders and management suffer the consequences of their actions. Sweden in the early 1990s, similarly demanded large equity stakes in return for rescuing banks from the financial, leading some to raise capital through the markets rather than accept onerous bailout conditions.
Cap leverage at large financial institutions
I support Barry Ritholz’ call for a maximum leverage ratio of 10. That should include off-balance sheet and derivative exposure. Currently the Fed only requires a leverage ratio of 20 (5%) for well-capitalized banks — and that excludes off-balance-sheet assets.
End speculation in the credit derivatives market
Bair pointed out that we don’t get to buy fire insurance on someone else’s house, for a very good reason. How is speculating using credit derivatives any different?

Again Ritholz makes a good suggestion: regulate credit default swaps (CDS) as insurance products, where buyers are required to demonstrate an insurable interest.
End the revolving door between regulators and banks
When regulators are conscious that, with one push of the door, they could end up working for the organizations they are today regulating – or vice versa – “it corrupts the mindset”

A similar revolving door corrupts the relationship between politicians and lobbyists. Enforcing lengthy “restraint of trade” periods between the two roles would restrict this.

via 5 Steps Obama or Romney Must Take to Fix Wall Street.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 29, 2012

The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee

With the ideological shift, supported by the intellectual acceptance of Keynes’s General Theory, politicians found themselves with an excuse to do what most had always wanted to do — take more money from the general public and transfer it to favored groups (or voting blocs). The benefits are invariably less than the costs, but they are visible, readily appreciated, and easily credited to politicians. Predictably, beginning in the 1930s federal spending began increasing as a share of GDP. It was about 4 percent of GDP in 1930, increased during the Great Depression and spiked to a historical high of about 47 percent during World War II. The federal government share of GDP then dropped to about 13 percent in 1948, reached a bumpy plateau in the early 1960s at slightly below to slightly above 20 percent that lasted for over 40 years, and then escalated rapidly in late 2008 to an estimated 25 percent in 2011……

The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee (pdf).

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 28, 2012

The real solution to poverty: JOBS | CIS

By Andrew Baker and Peter Saunders:

There are two ways to reduce “poverty”: increase the value of welfare benefits faster than the value of wages, or move substantial numbers of people off welfare and into full-time jobs. Anti-poverty campaigners invariably emphasise the first option and neglect the second, but the first actually undermines the second……

The real solution to poverty: J-O-B-S, J-O-B-S, J-O-B-S | The Centre for Independent Studies.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 28, 2012

Joseph Stiglitz: "Government could have prevented much of what happened"

Nobel Prize-winning economist, Joseph Stiglitz criticizes presidential policies on both sides. Of President Barack Obama’s financial-industry rescue plan, Stiglitz says that whomever designed it was “either in the pocket of the banks or …. incompetent.”

Here’s The Thing: Joseph Stiglitz (May 07, 2012)

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 28, 2012

Australia: Household debt crisis

A few days ago I mentioned that Australia is in a housing bubble. The easiest way to gauge this is to compare Australian household debt/disposable income (DPI) to the US peak before the global financial crisis. After all, household debt is the fuel for a housing bubble.

Housing Finances

Australia’s current ratio of 150% (or 1.5 times DPI) is higher than the US peak of 1.3 times DPI during the housing bubble. And far higher than the current US ratio of 1.1 times DPI.

Credit Growth by Sector

No time to be complacent.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 26, 2012

A Closer Look GDP Data | The Big Picture

By Barry Ritholtz

The GDP data this morning was a deep sigh of relief for those people who fear a recession may be coming. I don’t have that sense of relief. Perhaps its my own bias, but the details of the GDP report reveal not an organic growth period in a healthy recovering economy, but rather a tepid post-credit crisis expansion highly dependent on government largesse and Federal Reserve accommodation…..

via A Closer Look GDP Data | The Big Picture.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 25, 2012

Australia: RBA running out of options

The Reserve Bank of Australia must be viewing the end of the mining boom with some trepidation. Cutting interest rates to stimulate new home construction may cushion the impact, but comes at a price. Consumers may benefit from lower interest rates but that is merely a side-effect: the real objective of monetary policy is debt expansion. And Australia is already in a precarious position.

Further increases in the ratio of household debt to disposable income would expand the housing bubble — with inevitable long-term consequences.

Housing Finances

While debt expansion is not in the country’s interests, neither is debt contraction (with growth below zero), which would risk a deflationary spiral. The RBA needs to maintain debt growth below the nominal growth rate in GDP — forecast at 4.0% for 2012-13 and 5.5% for 2013-2014 according to MYEFO — to gradually restore household debt/income ratios to respectable levels.

Credit Growth by Sector

If the RBA’s hands are tied, similar restraint has to be applied to fiscal policy. First home buyer incentives would also re-ignite debt growth. The focus may have to shift to state and local government in order to accelerate land release and reduce other impediments — both financial and regulatory — to new home development. Lowering residential property development costs while increasing competition would encourage developers to cut prices to attract more buyers into the market. While this would still increase demand for new home finance, lower prices would cool speculative demand fueled by low interest rates.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.